Monetary policy in the interests of the country as a whole
Thomas Jordan, Chairman of the Governing Board
111th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 26.04.2019
For some four years now, the Swiss National Bank has based its monetary policy on two key elements: the negative interest rate and the willingness to intervene in the foreign exchange market as necessary. Both are unconventional monetary policy measures, and in the current situation both are essential to ensure price stability.
The level of interest rates worldwide has been falling for the past quarter of a century. There are various reasons behind this decline. Among them is the success central banks have had in their efforts to combat inflation. However, real interest rates across the globe have also come down, this being connected with factors such as demographic change and the slowdown in productivity growth in advanced economies. The low interest rate environment has made it more difficult for conventional monetary policy to respond to shocks. A central bank will normally mitigate economic slowdowns by reducing interest rates. If the global level of interest rates is already very low, however, the room for manoeuvre with conventional monetary policy measures is restricted.
The global financial and economic crisis broke out eleven years ago, and led to a marked decline in economic output and inflation in Switzerland. The SNB initially responded with conventional measures, and lowered interest rates to virtually zero. As the financial crisis was followed by the sovereign debt crisis in the euro area, the SNB had to resort to unconventional means and intervened on the foreign exchange market. Since the discontinuation of the minimum exchange rate, the SNB has been charging negative interest to curb the appeal of the Swiss franc. Coupled with the SNB's willingness to intervene, the negative interest rate was a significant factor in ensuring that the Swiss economy emerged from the crisis relatively unscathed. And it is helping our economy to continue to fare well today despite the array of uncertainties worldwide.
That said, the low level of interest rates does pose challenges for parts of the Swiss economy such as pension funds and life insurers, and it also has knock-on effects, for example on the real estate market. However, all these problems are not so much the result of negative interest itself, but rather of the low level of interest rates globally. The negative interest rate was introduced following careful consideration of the advantages and disadvantages, and its effectiveness is objectively assessed on an ongoing basis. Against the current backdrop, the SNB's unconventional monetary policy remains both necessary and appropriate - and is thus in the interests of Switzerland as a whole.